Vital managers making easy money out of Oz move: adviser

Vital Healthcare Property Trust Management general manager David Carr. Photo / Martin Sykes

Vital Healthcare Trust's proposed $238.9 million Australian expansion is not popular with all investors.

Brent Sheather, a financial adviser whose clients control a block of units, criticised the trust's new management deal proposed as part of the purchase of 12 Australian hospitals, surgical and psychiatric facilities.

"In my view the proposed performance fee is a joke. The performance fee is going to be based on unit holder returns and the manager will get a performance fee if the total unit holder returns are in excess of 10 per cent annually. Currently Vital is paying a dividend of 8 to 8.2 cents per unit per year and the current share price is $1.24 per share.

"The dividend is either an excluded dividend or fully imputed which means it is tax-free to unitholders therefore the current yield is 9.2 per cent, so the share price only has to go up by less than 1 per cent for them to get a performance fee," Sheather said.

But Jeremy Simpson, Forsyth Barr analyst, was optimistic about the expansion.

"Vital has strong defensive qualities given its long-weighted average lease term of 8.4 years, almost twice the sector average, low lease expiry risk and most of its leases structured for annual CPI-based rental increases. The proposed Australian expansion provides Vital with the opportunity to transform what is already a strong operation. Our [guidance] is hold with Vital trading in line with our valuation," Simpson said.

"Vital has a solid track record of managing its portfolio and balance sheet in recent years and has been a leading listed property performer through the global financial crisis, however it has struggled to find value-adding opportunities. This acquisition provides Vital with the opportunity to significantly expand, increase its weighted average lease term from 8.4 to 11.5 years ... improve the near-term lease expiry profile, and it is forecast to be accretive to earnings," Simpson said.

Unitholders in Vital will meet later this month to vote on the deal.

Units closed up 2c yesterday at $1.26.